Target CEO outlines plans for Canada

How Target hopes to succeed where Zellers failed.

Targeting Canada: Gregg Steinhafal, chair of the board, president and CEO of Target Corp.

By:Dana FlavelleBusiness Reporter, Published on Fri Jan 14 2011

The snow was falling Thursday morning both in Minneapolis, headquarters of Target Corp., and in Toronto where the head of the retail giant was outlining his plans for its first stores outside the U.S.

Gregg Steinhafel, the clean-cut, boyish-looking, 55-year-old chairman, president and chief executive officer of America’s second largest discount chain, was in town extolling the virtues of shopping at Target.

“We’re very excited to be part of the Canadian retail community,” Steinhafel said in an interview. “We want to be the best, most relevant retailer that operates in Canada.”

The cheap-chic retailer, known to fans of its high style, low price format as “Tar-zhay,” had announced just hours earlier it would open 100 to 150 Canadian stores by 2014 by taking over many of Zellers’ leaseholds.

The deal will put $1.825 billion into the coffers of Zellers’ parent, the Hudson’s Bay Co., while likely accelerating the arrival of other U.S. retailers clamoring to get into Canada.

But how will Target succeed where Zellers’ has failed?

The chains share many common traits. Both are the second ranked discount department store in their home markets behind the leader, Wal-Mart. Both strive to be slightly more upmarket and more style-conscious. At one time, Zellers was even carrying some Target brands, such as Mossimo.

But while Target has held its own, Zellers has struggled to compete since Wal-Mart entered the Canadian market in 1994.

In 2006, HBC’s last year as a publicly traded company, the company recorded a whopping $175 million loss, most of it due to a one-time writedown on its Zellers stores. The company was being purchased by the late Jerry Zucker, an American industrialist.

Four years later, “most” Zellers’ stores are now cash flow positive and profitable, says the current owner Richard Baker, whose New York-based firm, NRDC Equity Partners, bought HBC in July 2008.

Not profitable enough to prevent HBC from agreeing to sell the leaseholds to Target.

Target’s plans for Canada are still very much in their infancy, STeinhafel said. One of its first tasks over the next 240 days is to evaluate which of 220 Zellers site it wants to keep, while also building its Canadian management team.

Steinhafel said the retailer plans to bring its trademark “value proposition” to Canada.

That includes an innovative new loyalty card program that gives Target cardholders an extra 5 per cent off most merchandise in the stores.

The ideal Canadian store will be 130,000 square feet in size with a tightly edited assortment of merchandise, including clothing, housewares and food, Steinhafel said.

The amount of food in Target’s Canadian stores will depend on the size of the store and the terms of the lease, Steinhafel said.

The retailer is unlikely to bring its SuperTarget format to Canada, which contain full supermarkets, as none of the Zellers’ sites is large enough, he said.

Target isn’t a tough sell to Canadians, many of whom already know and love the retailer.

But while most industry observers have described Target’s takeover of Zellers as “inevitable,” business historian Joe Martin disagrees.

“If you’d had better management at Zellers, no, this wouldn’t have happened,” he said in an interview, referring to the chain’s decline under previous owners.

However, it provides a cautionary tale as the retail industry becomes increasingly global, said Martin, who is director of business history at the University of Toronto’s Rotman School of management. “You have to be prepared to compete internationally.”

Founded in 1931 by Canadian Walter Zeller, the chain was one of the survivors of a wave of retail consolidation that saw Kmart, Kresge’s, Woolco and other discounters disappear. After his death in 1952, the stores were majority U.S. owned by the W. T. Grant Co.

In 1976, Zellers became part of HBC, which merged it with Kmart in 1998, four years after Wal-Mart entered the Canadian market, sparking a wave of consolidation.

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